The drive is unrelenting for every MSP to improve their security profile — and that of their customers. There are many vendors and tools that work for various situations, but acquiring those assets requires money. So, it’s key for MSPs to know how to best secure funding to secure their clients.
To begin with, it’s important for MSPs to ensure that their own accounts are in order, according to Dawn Sizer, CEO of 3rd Element Consulting, which she describes as a security-focused MSP. “Lots of people don’t know where their money is going. They think they can run their business by themselves.”
Once an MSP can get a better financial picture, that’s when they can begin to look at numerous ways to invest in their growth.
Turn to Vendors
If you’re an MSP just starting out, working with flexible vendors can ease some of that financial strain, said Paul Daigle, CEO of Biz Advisory Board in Orlando. Some vendors can serve as a bridge for smaller MSPs, allowing them to scale operations without heavy upfront investments.
“Smaller MSPs may not realize how helpful a vendor can be,” Daigle explained. “They can provide tools that cost $10 per seat and cover the upfront cost by charging you $25 per seat until you pay off what you owe, then drop down to the regular price.”
Some vendors even offer coaching and peer groups to help you grow your business.
Leverage Your Own Resources
Dawn Sizer
For some MSPs, like Sizer, the best source of reliable and controllable funding comes from their own “piggy bank.”
In fact, for the last 20 years, her company has funded everything internally, she said. She’s never turned down a project for lack of money. “Our biggest issue has been bringing on large clients and having to hire to cover those. You need to have funds to pay them until revenue ramps up.”
Traditional Banking: Loans and Lines of Credit
When personal funds fall short, traditional banking options often provide the next logical step.
These include banks with entrepreneur-focused programs or government-backed loans, said Todd Kane, president of Evolved Management Consulting outside of Vancouver, B.C., in Canada. Kane said he refers clients to the Bank for Canadian Entrepreneurs. “They’re more risk tolerant than a traditional bank.” A counterpart for that in the U.S. could be the Small Business Administration (SBA).
However, these traditional lending options are best leveraged when your current financials are stable, said longtime MSP Allen Edwards. “If you can’t pay your bills, the bank won’t help you. When you have plenty, with your war chest built up, get a line of credit from your bank before you need it.”
Other Investors
When traditional funding options aren’t sufficient or available, external investors — like a private equity (PE) or venture capital (VC) firm — can provide growth capital. PE firms tend to focus on established businesses, while VCs invest in early-stage companies.
Allen Edwards
While bank loans are paid back with interest, PE and VC firms expect interest plus a part of your MSP — taking away some of your ownership, added Daigle. Some VC firms even take leadership positions. While PEs act as more of a silent partner, you’ll have new principals involved in your business.
This often requires a mindset shift. “When giving up some level of control and power, you have emotional barriers to overcome,” warned Edwards. Some owners react with the “nuclear approach” and leave, he said. Others see it as advantageous to be part of a bigger team.
In fact, some PE firms may bring an MSP new skills or talent pools to help with projects, noted Edwards. “That may be more important than the money.”
Strings Attached: Use Wisely
Ultimately, every funding choice comes with conditions. This makes it essential to weigh your options carefully.
Make sure your new partners align with your interests, have the same timeline for future growth, and introduce as little extra stress as possible, said Kane. This will help ensure that the attached strings will pull your business forward, rather than holding it back.
Featured image: iStock
